The government is likely to bring further clarity in norms for foreign direct investment in limited liability partnerships LLP that were introduced two years ago.
Based on proposals of prospective investors,we have realised that there are some issues that still need to be ironed out for LLPs. The department of industrial policy and promotion DIPP is expected to start a review soon, said a senior government official. Downstream investments as well as appointment of nominee directors are some of the clauses that need to be addressed,the official said.
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Another hindrance being faced by foreign investors is that the rules for foreign direct investment FDI do not permit LLPs to raise external commercial borrowings.
The DIPP is expected to start discussions with concerned ministries and stake holders soon based on which,it will take a final proposal to the Cabinet for clearance.
The government had in May 2011 permitted FDI in LLPs through approvals in all sectors where 100 per cent foreign investment is allowed through the automatic route,with no performance conditions attached.
Accordingly,all proposals for LLPs have to be routed through the Foreign Investment Promotion Board.
An Indian company operating with funds raised through FDI can invest in a downstream LLP,only if both companies work in sectors with 100 per cent FDI. However,LLPs with FDI funding are not eligible to make downstream investments.
LLP is a very common method of a joint venture due to its advantageous tax structure but the question is whether the government wants to really invite foreign investors? There are a lot of grey areas,be it regarding to valuation norms or downstream investments by foreign investors, said Girish Vanvari,co-head,tax at KPMG.
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